Iran's resilient economy takes the costs of Iraqi war in stride

By
David R. Francis, Staff writer of The Christian Science Monitor /
July 11, 1985

Financially, Iran can afford its war with Iraq.

A bank economist estimates the war's cost in hard currency at $3 billion to 4 billion a year. Oil revenues run about $1 billion a month. A drop in oil prices -- unless drastic -- would still leave Iran with enough money to continue the war if it chose to. Of course, money spent on the war is unavailable to pay for development projects or other imports.

But in riyals, the local currency, the cost of the war would be much higher than $3 billion to 4 billion.

Iran can apparently manage the loss in casualties, too. Some of the revolutionary mullahs have encouraged marriage at a younger age -- sometimes for women as young as 12 or 13 -- as a way of avoiding ``sin.'' One result has been an increase in the birthrate to above 3 percent. It was around 2.6 percent -- and heading downward -- in the Shah's time.

Iran's war with Iraq has cost it at least 150,000 deaths, it is estimated. But Iran's population of 40 million increases more than 1.2 million a year.

``The Iranians are acting on a day-to-day basis,'' said an expert with Business International in London, a consulting firm. ``Their main problem is, they don't have enough money and they have a war to run.''

Like others interviewed for this story, the Business International researcher did not want to be identified by name. Most hope to visit Iran in the future and fear that any critical comments would, in the case of foreigners, prevent them from obtaining a visa, or in the case of expatriates, endanger them.

Since the revolution, Iran has paid off most of its foreign debt. ``They have no credit,'' an American diplomat said. As of a year ago, Iran owed about $2 billion to foreign commercial banks -- a small amount compared with many other developing countries.

From the Iranian standpoint, being relatively debt-free is part of national independence. Foreign influences -- American, British, or Russian -- are no longer dominant.

Iran's international monetary reserves are small. Thus Iran has not much of a cushion against a drop in oil revenues. In such an event, it must quickly cut back imports.

The revolutionary government has not succeeded in its goal of reducing economic dependence on oil revenues. ``Oil sales play an essential role in determining the economic health of the country,'' a bank economist noted.

Oil revenues exceed $1 billion a month normally, although they jump about considerably. For example, in January Iran produced crude at a rate of 1.4 million barrels a day; in February, 2.1 million; in March, 2.3 million, in April, 2.5 million; in May, 2 million. According to Platt's Oilgram News, the figure was ``way down'' in June. Domestic consumption of oil amounts to about 700,000 barrels a day.

That high volume in the spring was obtained by sharp discounting. Intense domestic objections to this price-cutting (to as low as $25 a barrel if barter deals, insurance subsidies, etc., are considered) have resulted in the resignation of an oil minister. Without such discounts, the new oil minister has apparently had trouble selling as much oil.

Another factor in reduced sales may be fear of kicking off an oil price war with Saudi Arabia, one the Saudis would likely win.

In the Iranian year that ended March 21, oil sales averaging about 2.2 million barrels daily brought revenues of $15 billion to 16 billion, according to an academic economist. Other exports, such as carpets, non-oil minerals, etc., brought in only around $300 million, which is less than in pre-revolutionary times.

``The government has increased Iran's dependence on oil,'' said the academic, an expatriate. Lower oil prices have also hurt.

Iran has modestly shifted its purchases away from the ``corrupt'' Western industrial nations. It bought 86 percent from the industrial nations, including Japan, before the revolution. Now it is buying less than 70 percent of its imports from them, making more purchases in India, Brazil, Turkey, and Eastern Europe.

Iranian purchases are often tied to sales of oil, a kind of barter. Sweden, for instance, buys Iranian oil it doesn't really need so as to sell machines and other exports to Iran.

The United States imported almost $700 million in goods from Iran last year, mostly oil, compared with $1.2 billion in 1983. The US sold $162 million of exports to Iran in 1984, down from $190 million a year earlier.

Officials of Iran's central bank and oil ministry are praised as competent, and, within political restraints, handling their important aspects of the economy -- monetary policy and oil sales -- fairly sensibly.

Right now the central bank is attempting to restrain inflation, and the economy has entered a slump. Real estate prices have plunged. Factories are having trouble getting foreign exchange to buy spare parts. Foreign travel has been curtailed.

Iran's political factions are still fighting over the economic future of the country. More-radical factions want a larger role for the government. The conservative bazaar merchants support the private sector.

Living standards, on average, are down sharply from pre-revolutionary times. In 1977, total Iranian output was some $77.8 billion. It had fallen to some $66.5 billion by 1982 and was probably a bit above that last year, according to an American diplomat.

The revolution, however, has ended some of the gross inequities in income by removing the Shah, his family, and other members of the economic elite. ``You don't see the vivid contrasts,'' noted an Iranian economist back from a recent visit.

Through price controls and rationing for food and other basics, the government tries to help the poor. (Since these are handled by the mosques, they are also used as a tool of political control.) But less money is being spent on agriculture than in the days of the Shah. Tehran's population has soared from 5 million before the revolution to 9 million, swelling its slums. Unemployment is high.

Islamic banking was introduced a year ago. This means the banks cannot charge interest on loans, but they survive by taking a portion of the ownership of an enterprise or sharing in profits. This, according to one economist, is causing some economic disruption as bankers and businessmen learn how to manage this change.

The government-owned banks, he said, are ``incredibly inefficient.''

As an attempt to increase economic independence and replace imports, the government is pressing ahead with a major chemical complex and two new steel plants.

But industrial production is still probably only about 65 percent of the pre-revolutionary peak, a bank economist reckoned. A Thursday column